In a bid to create a telecommunications provider serving more than 17 million customers nationwide, CenturyLink and Qwest Communications announced Thursday that their boards have approved a definitive agreement under which CenturyLink would acquire Qwest in a proposed $10.6 billion stock-swap.
If approved, the merger will create a much stronger No. 3 telco in the U.S., behind AT&T and Verizon Communications.
The combined CenturyLink-Qwest would have operations in 37 states, and would have had revenue of $19.8 billion last year. As of December 31, 2009, CenturyLink and Qwest together served approximately 5 million broadband customers, 17 million access lines, 1.4 million video subscribers and 850,000 wireless consumers.
CenturyLink (previously CenturyTel) last year acquired Embarq, the former local telephone operations of Sprint.
The companies anticipate closing the transaction in the first half of 2011, subject to regulatory approvals. CenturyLink valued the deal at $22.4 billion, which includes the assumption of $11.8 billion of Qwest's outstanding debt as of Dec. 31. The acquisition is structured as a tax-free, stock-for-stock transaction. CenturyLink expects the Qwest deal to be accretive to its free cash flow per share, excluding integration costs, immediately following the close of the transaction.
By "leveraging CenturyLink's proven integration experience," the combined entity will generate annual operating and capital synergies of approximately $625 million when fully recognized over a three- to five-year period following the close of the transaction, according to the companies.
"We believe the combination of CenturyLink's and Qwest's employees, assets and service areas will provide us greater scale, scope and expertise and will provide significant benefits for shareholders, customers and our communities," CenturyLink president and CEO Glen Post III said in announcing the deal.
The companies touted the merger as creating a national 173,000-mile fiber network, expanding their competitive capabilities and providing "synergy opportunities." CenturyLink estimates that it will incur approximately $650 million to $800 million of operating costs and approximately $150 million to $200 million of one-time capital costs to achieve operational synergies, which it said would amount to $575 million within three to five years.
Post will be president and CEO of the combined company, and William Owens (currently CenturyLink's chairman) will be chairman of the board. Following the close of the transaction, the board of directors of CenturyLink will add four members from the current Qwest board, including Qwest chairman and CEO Ed Mueller.
The corporate headquarters of the company will remain in Monroe, La., where CenturyLink is located. The company also will maintain an operational presence in Qwest's hometown of Denver, including a regional headquarters, the Qwest Business Markets Group, as well as other functions to be determined.
The deal is subject to regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act as well as approvals from the Federal Communications Commission and certain state public service commissions, along with other customary closing conditions.